Perfection Flashcards
What is perfection
Notice to other parties who may want to make a loan to the debtor or buy the collateral to which a security interest has already attached
What are the methods to perfection (once attached)?
Filing
Possession
Control
Alternative Perfection System
State certificate of title law (car or motorcycle)
Automatic perfection (temp or permanent)
True or false: perfection by filing is applicable for perfecting all collateral
False.
Exceptions to filing: bank accounts, money, letters of credit, or collateral subject to other perfection methods
Where does one file a financing statement?
Central filing office in the state where debtor is located
+ corporation: state of incorporation
+ business not registered: state in which it operates – multiple states, chief executive office located
+ individuals: state of principal residence
Note: security interests in real property related collateral are filed in the county where property is located
True or false: If a secured party files a financing statement in the wrong location, there is no perfection
True – beware of fact patterns with multiple states
A financing statement requires:
Name of the debtor
Name of the creditor
?
- Description of the collateral
AND required, but non-essential:
- address for both debtor and secured party
- Individual v. organization debt
What are the additional terms that a financing statement for real-property-related collateral?
- Indication that a security agreement covers this type of collateral
- To be filed in the local real property records
- Describes the real property to which collateral relates
- Name of the record owner of the real property, if debtor is not the person who has an interest in the real property
True or false: recording the mortgage in the local real property records can satisfy the financing statement requirements if it contains the requisite information
True. And it need not note that it is filed in the local real property records
How can a debtor authorize a financing statement?
- sign the financing statement
- Authentication
True or false: a registered organization debtor may include its trade name in its filing?
False – use name on articles of incorporation or last public organic record filed with the state
What is the majority rule for individual debtors and the name on their filing?
Use the state issued id. No id? legal name on birth certificate or passport.
True or false: secured parties must use the same collateral description for their security agreement in the financing statement
False. A financing statement can be super generic and need not mention proceeds or after-acquired property or future advances
Are minor errors in a financing statement a bar to perfection?
Generally, no, as long as the financial statement is not seriously misleading.
Note that name errors are almost always seriously misleading
How long do financing statements once perfected last?
five years after the date of filing, unless continued within 6 months before the statement lapses
What happens to a financing statement once the obligation is paid back?
A termination statement voids the financing statement
What kinds of collateral can be perfected by possession?
- Money
- Goods
- Instruments
- Negotiable documents
- Tangible chattel paper
True or false: in perfection by possession, as soon as the secured party has possession, the interest is perfected
True, it’s perfected as long as the secured party retains possession
What kinds of collateral can be perfected by control?
- Deposit (bank) accounts
- Investment property
- Electronic docs
- Electronic chattel paper
- Letter of credit rights
If a lender files a financing statement to perfect a security interest in a deposit amount or letter of credit right, what is the effect of the filing?
Ineffective, not perfected because perfection by control is the only acceptable method for those two types of collateral.
How can control be obtained over a deposit account?
- Secured party is the bank that has the deposit account (lender and bank are the same)
- Secured party, bank, and debtor agree in an authenticated doc (lender has control)
- Secured party can become the bank’s customer
What collateral must be perfected under state certificate of title?
Cars, motorcycles, or other vehicles with a title
Perfect by noting security interest on that certificate of title
True or false: cars that are inventory can be perfected by other means
True. Exception to the certificate of title requirement.
New cars likely do not yet have a title when purchased, so there’s no title on which to note the lien. Filing works.
True or false: a purchase money security interest in consumer goods automatically perfects
True, unless a state’s certificate of title statute governs
True or false: A purchase money security interest in inventory, equipment, and farm products is automatically perfected
False, just PMSIs in consumer goods
What happens if a party fails to file an updated financing statement after the 4-month window expires?
Collateral that is acquired before the name change and collateral acquired during the period = covered/perfected
Collateral acquired after the period = not perfected
Must a secured party refile if a debtor moves out of state?
Yes, the secured party must refile in the new state within a four-month window to remain continuously perfected
What happens if collateral is transferred to a new debtor who lives out of state?
The secured party has one year to file a financing statement listing the new debtor
